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December 23, 2010

New York Department of Labor Issues Final Wage Order Affecting Hospitality Industry

On December 15, 2010, the New York State Department of Labor (the “Department” or “NYSDOL”) finalized the new Hospitality Industry Minimum Wage Order, which substantially revises New York minimum wage requirements for the hotel and restaurant industries, including the minimum wage, tip credit amount, spread of hours calculations, and permissibility of tip pooling.  The effective date for all provisions in the Final Wage Order is January 1, 2011.  The full text of the Final Wage Order is expected to be made publicly available on the NYSDOL website at

Minimum Hourly Wage and Tip Credits

Effective January 1, 2011, an employer in the hospitality industry may take a tip credit towards the $7.25 basic minimum hourly rate for food service workers or service employees if two conditions are met: (1) the employee must not have worked at a non-tipped occupation for 2 or more hours, or for more than 20% of his or her shift, whichever is less; and (2) the employee has been notified in writing of the tip credit.  A “food service worker” is an employee primarily engaged in service food or beverages to guests, patrons or customers in the hospitality industry and who regularly receives tips from the guests, patrons or customers.  A “service employee” is an employee, other than a food service worker, who typically receives $1.60 or more per hour in tips. 

The Final Wage Order also imposes an increased mandatory minimum hourly wage.  While the existing rules permit hospitality industry employers to pay employees on a piece rate, salary or other basis, the Final Wage Order eliminates this discretion and requires that all hospitality employees be paid on a strictly hourly basis.

Thus, food service workers must receive a wage of at least $5.00 per hour (increased from $4.65 per hour), and credit for tips cannot exceed $2.25 per hour.  Similarly, a service employee must receive a wage of at least $5.65 per hour (increased from $4.90) with a tip credit of no more than $1.60 per hour.  For service employees working in resort hotels, the minimum hourly wage is $4.90 per hour (increased from $4.35), and credit for tips cannot exceed $2.35 per hour.  In all cases, the minimum hourly wage plus tip credit must equal or exceed $7.25 per hour.

Overtime Hourly Rates

Employers in the hospitality industry must pay all employees for overtime at a wage rate of 1 ½ times the employee’s regular rate for all hours worked in excess of 40 hours in a workweek.  The rule makes clear that a hospitality employee’s regular rate of pay includes any tip credit.  The rule also sets forth a precise formula for calculating the overtime rate:

Regular Rate x 1.5 – Tip Credit = Overtime Rate

The Final Wage Order requires that, prior to the start of a hospitality employee’s employment, the employee must receive written notice of (1) the employee’s regular hourly rate of pay; (2) overtime hourly pay rate; (3) the amount of tip credit, if any, to be taken from the basic minimum hourly rate; and (4) the regular payday.  The employer must maintain in its records a signed acknowledgment of receipt of this notice for each employee for six years.  We are available to assist you in preparing the required written notice.

Tip Pooling Permissible

Unlike the existing laws, the Final Wage Order permits both tip sharing and tip pooling on a voluntary basis.  The Final Wage Order also permits employers in the food service industry only to require food service workers to participate in a tip pool or tip share and set the percentage to be distributed among the food service workers.

Employers who implement a tip sharing or tip pooling system must establish and maintain records that include: (1) a daily log of tips collected by each employee on each shift, whether in cash or by credit card; (2) a list of occupations that are eligible to receive tips through tip sharing or tip pooling; (3) the shares of tips each occupation is to receive; and (4) the amount in tips each employee receives by date.  These records must be preserved for at least six years.

Spread of Hours

An employee who works more than 10 hours in one day must be paid one extra hour of pay at the basic minimum hourly wage rate.  The extra hour of pay cannot be offset by a meal or lodging credit.  This rule applies to all employees in restaurants and all-year hotels, regardless of their regular rate of pay.  Furthermore, the additional hour of wages need not be included in the regular rate for purposes of calculating overtime. 

Implementation Period

Although all the provisions of the Final Wage Order take effect January 1, 2011, employers in the hotel and restaurant industries will have a two-month implementation period (e.g., through February 28, 2011), to make necessary changes and adjustments in their payroll systems and bookkeeping operations.  The Department will exercise discretion in enforcing the new rule to allow employers time to come into compliance with the requirements of the Final Wage Order.  However, employers who take advantage of the implementation period must nevertheless pay all additional wages owed to employees under the new rule, computed retroactively to January 1, 2011, by no later than the next regularly scheduled pay day following March 1, 2011.  Furthermore, the Department’s provision of an implementation period does not preclude an employee’s private right of action for wages owed under the Final Wage Order at any time after January 1, 2011.

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Employers in the hospitality industry must be aware of their obligations under the Final Wage Order and must make the necessary changes to their payroll systems and bookkeeping operations to ensure compliance.  We are available to assist you in this regard.  Although the Department has chosen to exercise discretion in enforcing the Final Wage Order during the implementation period, we strongly advise all employers who are able to fully comply with the rule as of its January 1, 2011 effective date to do so, to avoid the possibility of private rights of action by employees.

If you should have any questions about the final wage order, the state minimum wage laws, or any other employment-related matters, please feel free to contact us.